Pending home sales dip again, but outlook still 'favorable' for housing market

It was a mixed bag of economic indicators on Wednesday, as pending home sales saw a third month of declines — but still largely up on an annual basis — while the Chicago PMI beat expectations and Milwaukee PMI fell.

Pending home sales index
Pending home sales dipped 2.6% in November, marking the third month in a row of declines, said the National Association of Realtors on Wednesday.

Sales declined 2.6% in the month.

Economists polled by IFR Markets anticipated a flat reading of 0.0%.

Year-over-year, sales are up 16.4%.

“The latest monthly decline is largely due to the shortage of inventory and fast-rising home prices,” said Lawrence Yun, NAR’s chief economist. “It is important to keep in mind that the current sales and prices are far stronger than a year ago.”

“The market is incredibly swift this winter with the listed homes going under contract on average at less than a month due to a backlog of buyers wanting to take advantage of record-low mortgage rates,” Yun said.

The index now sits at 125.7, lower than the 128.9 it posted last month but marks an all-time high for the month of November, according to the NAR, where an index of 100 is equal to the level of contract activity in 2001.

According to the release, Yun predicts a favorable outlook for the housing market in the coming year. According to his 2021 projections, there will be a slight upward rise in mortgage rates to around 3% from the current 2.7% rate. Existing-home sales are expected to increase roughly 10% and new home sales by 20% next year.

“Economic growth is guaranteed from the stimulus package and from vaccine distribution, but high government borrowing will put modest upward pressure on interest rates,” he said.

Chicago PMI
The Chicago Business Barometer climbed to 59.6 in December from 58.2 in November.

Economists expected a 56.4 read.

“Through Q4 as a whole, business sentiment recovered further to 59.6, the strongest reading since Q4 2018,” the report said.

Of the major five indicators, new orders recorded the biggest drop, while employment and order backlogs rose the most.

Milwaukee PMI
The Institute for Supply Management-Milwaukee PMI dropped to a seasonally adjusted 56.87 in December from 61.96 in November.

New orders fell to 68.16 from 77.08, production decreased to 44.90 from 53.7, while employment dropped to 49.98 from 53.26.

Supplier deliveries rose to 91.48 from 77.88, inventories fell to 29.84 from 47.84, customers’ inventories gained to 33.33 from 25.00 and prices climbed to 80.95 from 72.22.

Backlog of orders dropped to 57.50 from 69.44, exports gained to 72.73 from 68.18 and imports fell to 57.69 from 62.50.

The blue collar index dipped to 50.5 from 56.1, while the white collar index slipped to 41.7 from 47.7.

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